US financial services technology company Enova has announced that it is to acquire SME lender OnDeck in a transaction valued at approximately US$90 million.
Chicago-based fintech Enova – which owns several credit, lending and analytics brands specialising in non-prime consumers and small business – has entered into a definitive agreement to acquire all outstanding shares of NYSE-listed SME lender OnDeck (which is a 55 per cent shareholder of OnDeck Australia).
Until the transaction closes, both companies will continue to operate independently.
Cameron Poolman, CEO of OnDeck Australia, told The Adviser: “OnDeck Inc. is a 55 per cent shareholder of OnDeck Australia, so the ownership of our major shareholder has changed.
“For OnDeck Australia, it will be business as usual and this ownership change will have no impact on our commercial operations, the brokers we support or their clients.”
Details of the acquisition
The transaction, valued at approximately US$90 million ($125.3 million), comprises both cash and stock. Approximately US$8 million ($11.1 million) will be paid in cash and OnDeck shareholders will receive $0.12 cents per share in cash and 0.092 shares of Enova common stock for each share of OnDeck held.
Upon completion of the transaction, OnDeck shareholders will own approximately 16.7 per cent of the combined entity, with Enova shareholders owning approximately 83.3 per cent.
The acquisition, which has been unanimously approved by the boards of directors of both companies and is subject to OnDeck shareholder approval and federal agency approvals (HSR approval), is expected to close this year.
Once completed, Enova will add the OnDeck brand, products and services to its existing portfolio to “create a combined company with significant scale and diverse product offerings in consumer and small-business market segments that banks and credit unions have difficulty serving”.
Enova CEO David Fisher will continue to lead the combined company while OnDeck chairman and CEO Noah Breslow will join the company as vice chairman and serve on the Enova management team.
According to the two CEOs, the deal will help draw on their respective strengths to create an online financial services company with “more diversified revenues, stronger cash flow potential, meaningful synergies and increased flexibility to drive growth, profitability and shareholder value”.
‘The right path forward for our customers, employees and shareholders’: OnDeck
Speaking of the deal, Mr Fisher said: “This strategic transaction, which brings together two fintech leaders, is a great opportunity for customers, employees and shareholders of both companies.
“Together, our companies will be stronger because of the complementary strengths and synergies of our businesses.
“Acquiring a premier online small-business lender and its ODX bank platform, and welcoming its innovative and talented team to Enova, will increase our scale and resources, providing us with opportunities to accelerate growth in our increasingly diversified portfolio as we continue to execute on our strategy to create long-term value for all of our stakeholders.”
Noah Breslow, OnDeck chairman and CEO, added: “I am proud of the business we have built and the more than $13 billion of financing we have provided to underserved small businesses since our founding in 2006.
“Following an extensive review of our strategic options, we believe this is the right path forward for our customers, employees and shareholders. Joining forces with Enova, a highly respected and well-capitalised leader in online lending, and leveraging our combined scale and strengths, provides the best opportunity for our long-term success.”
Together, Enova and OnDeck had $4.7 billion in originations in 2019 and have served approximately 7 million customers.
As of 31 March 2020, the companies had combined gross receivables of $2.4 billion (on a pro forma basis), 61 per cent of which were small-business assets and 39 per cent consumer assets.
SME lending space in a period of consolidation
The announcement comes hot on the heels of other acquisition announcements in the SME lending space.
Earlier this week, CML Group (the parent company of Cashflow Finance and Classic Funding Group) announced that it had entered into an agreement with online invoice finance platform Skippr, in a bid to allow it to access smaller clients (with receivables books below $200,000) more profitably and “improve client retention through a better and more automated user experience for existing and new clients”.
Meanwhile, SME lender Grow Finance Group recently completed its acquisition of Australian Invoice Finance.
Grow Finance Group – which offers SME finance products including trade finance, invoice finance and asset finance – agreed to the deal with the debtor finance provider in early March 2020 and the deal has now reached completion.
Earlier this year, the global CEO of SME lender Capify also revealed that the lender would be focusing on growth in 2020, stating that it was considering potential mergers and acquisitions to broaden its reach into the small-business finance space (however, these comments were made before the coronavirus pandemic hit).
Annie Kane is the editor of The Adviser and Mortgage Business.
As well as writing about the Australian broking industry, the mortgage market, financial regulation, fintechs and the wider lending landscape – Annie is also the host of the Elite Broker and In Focus podcasts and The Adviser Live webcasts.
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